HS2 Lobby Day.

Please take a seat.

Welcome

Andrea Leadsom MP

Theresa Villiers MP

Minister for Transport

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A review of the HS2 Business Case

Chris Stokes

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BackgroundBritish Rail 1967 – 1993• InterCity Planning and Resources Director• Deputy Director, Network SouthEastDeputy Franchising Director 1993 – 1999Executive Director, Strategic Rail Authority 1999 – 2000Principal, L.E.K. Consulting 2000 – 2003Independent rail industry consultant 2003 to dateBoard Member, Office of Rail Regulation 2004 – 2006

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Forecast demand growthHS2 forecast background demand growth for 2008 –

2033:• Long distance rail 133%• Domestic air 178%• Car 43%“long distance rail demand will more than double,

driven by people’s increasing propensity to travel further and more frequently as they grow wealthier”

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HS2 forecasts are higher than others

HS2 say if forecast demand falls short by just over 20%, the Benefit Cost ratio for HS2 drops to 1.5

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Origins of forecast HS2 demand• Switch from existing rail 57%• New trips 27%• Switch from air 8%• Switch from car 8%Notes• The “new trips” demand is over and above the forecast 133% long

distance rail growth• The “switch from air” volumes are higher than current air volumes

between Heathrow and the NW and Scottish lowlands• The switch from car is forecast to decongest the M1 by 2%HS2’s overall forecast growth (including new trips and air

and car transfers) is 267%

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Actual growth

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Is travel still growing with GDP?

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Domestic air traffic to London airports is declining – is 178% growth by 2033 credible?

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2000 2002 2004 2006 2008

All London airportsHeathrow

Source: CAA

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Future rail growth

Rail has shown very strong growth in recent years – possible reasons:

• Improved reliability• Improved services eg West Coast Main Line• New trains• Cheap advanced faresBut will compound growth continue?

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Rail growth – downside risks

• Saturated markets eg Eurostar to Paris and Brussels, Shinkansen – even with high speed, world class products

• Virgin have now won “low hanging fruit”, particularly Manchester – London air market and central London business travel

• Potential reduction in business travel – internet use, video conferencing

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Eurostar volumes are way below original forecasts for HS1

2009 total passengers 9.2m – against original forecast of 25m for 2006

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HS2 volumes – competition risksRail• Chiltern London – Birmingham route being upgraded: c90

minute journey times, cheaper fares• Continued fast trains on the “classic” route – needed to

serve Milton Keynes/Coventry/Wolverhampton in any case

Unanticipated competitive responses• Eurotunnel – large, low cost ferries• Eurostar – low cost airlines opening up alternative “city

break” destinations• Shinkansen – wide body low cost flights Tokyo - Osaka

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Financial case for HS2

• Capital costs £17.8bn – Infrastructure £15bn– Trains £2.8bn

• Incremental revenue (NPV) £15bn• Incremental operating costs (NPV) £7.6bnNote: fares assumed to rise by RPI+1% until 2033, an increase of

27%Net revenues (£7.4bn) cover c42% of the capital costs

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Non financial (economic) benefits

• Time savings– Business travellers £17.6bn– Commuter/leisure travellers £11.1bn

• Agglomeration benefits £2bn• Imperfect competition £1.6bnTotal £32.3bn

Time benefits assume all travel time is unproductive, and imply an average salary for business travellers of £70k pa. “Imperfect competition” is estimated at 10% of the time savings

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“Agglomeration benefits”• These are low relative to the cost of HS2 and are

principally made up of benefits through operation of additional trains on the capacity freed up on the existing network

• Benefits directly as a result of reduced journey times were estimated for HS2 by Imperial College at only c£8m pa

• The existing West Coast Main Line upgrade has already transformed journeys on the route – For example Manchester now has a 20 minute frequency, 2 hour

8 minute journey time (previously hourly, 2 hours 40 minutes)

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Are there alternative ways of increasing capacity?• Capacity is already being increased - most Pendolinos are being

lengthened from 9 to 11 cars, increasing standard class seats from 294 to 444 (+51%)

• Further increases could be achieved by reducing the proportion of first class

• Trains could also be lengthened to 12 cars (except to Liverpool)This gives at least 65% more capacity at low capital cost, without any

disruption• Work done for DfT by WS Atkins as part of the HS2 programme

suggests major further capacity increases are possible by incremental improvement at much lower capital costs, giving a higher benefit cost ratio (3.6 against 2.7)

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The opportunity cost

• The Midlands and the North might get greater regeneration benefits (without increasing the “gravity impact” of London and the South East) by renewal and electrification of their regional networks – at much less overall cost

• In contrast, HS2 is likely to dominate rail capital expenditure to the exclusion of other projects

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So have other countries got it wrong?

• The case for high speed rail depends on quality of rail services and the geography in each country

• The British network already offers fast journey times and high frequencies on main lines to London, with much less scope for the step change that high speed rail delivered in, for example, Spain and Japan

• Distances between key cities are generally shorter in Britain than other “high speed” countries, reducing the potential benefits

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Conclusions

• The business case for HS2 is not yet proven, and at best marginal

• The risks are overwhelmingly downside• There is likely to be a significant opportunity

cost in relation to the existing rail network

High Speed Rail – Deceiving the regions?

Mike GeddesHonorary Professor, University of

Warwick Business School

High Speed Rail – Deceiving the regions?

Speaking at the Conservative Party Conference, Transport Secretary Philip Hammond said the high speed rail network would “change the social and economic geography of Britain; connecting our great population centres and international gateways”.

Hammond further suggests that linking England's main cities with a high-speed link – with further links to Scotland in the future – could help break down the north-south divide:

"Bringing those economies in closer reach of London, allowing them to benefit from London's magnet effect in the world, is going to help solve some of the most intractable postwar social and economic problems Britain has faced."

The Guardian, 3 and 4 October 2010

High Speed Rail – Deceiving the regions?

This echoes a number of Influential public and private voices, especially the promotional group Greengauge 21, who argue that high speed rail will create jobs, improve the competitiveness of regional economies and promote regeneration.

High Speed Rail – Deceiving the regions?

• Research by KPMG for Greengauge suggests HSR could create 25-42,000 new jobs and higher wages with most impact in the North and Midlands, especially in the core cities.

• Steer Davies and Gleave for Greengauge claim that wider economic benefits to the West Midlands could be in the region of £5.3 bn.

• Doubtless influenced by such claims, the government itself in the High Speed Rail Command Paper says there would be substantial economic benefits to the major city regions of the North and Midlands.

High Speed Rail – Deceiving the regions?

But claims such as these are highly unreliable. They project benefits over long periods (up to

60 years), well beyond any reputable economic forecasting horizon.

They produce no real evidence of how HSR is supposed to generate economic benefits.

High Speed Rail – Deceiving the regions?

In fact the evidence is very different:• The key study conducted for HS2 Ltd by Imperial

College says that the amount of new economic growth created by HS2 would be ‘very small indeed’ – maybe £8m pa.

• Most of the wider economic benefits claimed by government from HS2 do not depend on the new high speed ‘connectivity’ but on improvements to local services. These however would require additional subsidies which seem highly unlikely in the current economic climate.

High Speed Rail – Deceiving the regions?

• But what HSR will do is to redistribute economic activity between places. Many expert studies suggest that this is a significant effect, and that in general the larger the local economy the more it will benefit. So-called ‘agglomeration benefits’ flow primarily to the most economically powerful existing agglomerations.

• Thus the likelihood is that the greatest benefit from HS2 and the wider proposed HSR network is likely to be London.

• London is also likely to gain because any economic growth would be concentrated in the service sector, not manufacturing or agriculture

High Speed Rail – Deceiving the regions?

We do not yet have robust evidence about whether other major cities, such as Birmingham, would benefit and if so how significantly.

HS2 say they will not have such evidence until the end of the public consultation.

High Speed Rail – Deceiving the regions?

• But what we can say is that:• If London (and possibly other major cities) benefit from the

redistribution of jobs and businesses induced by HSR, this can only be at the expense of regions, towns and rural areas not served by stations on the proposed route

• These losers from high speed rail are likely to include whole regions such as East Anglia and the South West not connected at all to the proposed network.

• While Birmingham might possibly gain, this could only be at the cost of other West Midland towns and rural areas, especially perhaps those suffering reduced conventional rail services to London. Any gain to Manchester would come from the great majority of the region unserved by an HSR station.

High Speed Rail – Deceiving the regions?

Thus HSR would indeed “change the social

and economic geography of Britain”. But to argue that it will promote regeneration and regional development seems like a big city stitch-up aimed at deceiving the regions.

Joe Rukin

Speed is NOT Green

HS2 will leave an unnecessary scar on some of our most unspoilt countryside

HS2 is not a low carbon solution

HS2 will have no significant downward impact on aviationHS2 will not ease congestion in any significant manner

HS2 is intended to promote more travel

There are less polluting alternatives

HS2 is not a low carbon solution

• We will establish a high speed rail network as part of our programme to fulfil our joint ambitions for creating a low carbon economy.

- The Coalition Agreement.

This ignores all the evidence.

HS2 is not a low carbon solution

Booz Allen Hamilton “Estimated Carbon Impact of New North-South Line” July 2007.

“In essence, the additional carbon emitted by building and operating a new rail route is larger than the entire quantity of carbon emitted by the air services."

HS2 will have no significant downward impact on aviation

• HS2 Ltd expect 178% increase in domestic aviation.

• Demand has been falling.• No affect on many routes.• If domestic services are cut, what happens to

those slots.• Is HS2 an airport transfer service?

HS2 will not ease congestion in any significant manner

• Fewer than 2% of those driving on the motorways between Birmingham and London are expected to switch to HS2.

• “High-speed rail proposals are high cost, high-risk megaprojects that promise little or no congestion relief, energy savings, or other environmental benefits.” – The Cato Institute Policy Analysis No 625. Randal O’Toole. October

2008

HS2 is intended to promote more travel

• Almost 40,000 ‘new’ journeys projected.• 40,000 parking spaces at Birmingham

Interchange, almost two miles from Birmingham International.

There are less polluting alternatives

• Rail Package 2• Not Travelling

HS2 will leave an unnecessary scar on some of our most unspoilt countryside• “Don’t destroy land, they’re not making it any

more.”• “Start off by collecting all the fact, then you

can distort them to your own purposes.”• Runway not a railway

Questions to the Panel

Thank you for your attendance.

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